Long-Term Care Insurance (LTCI) 

We face a rapidly ageing population.

Since the 1920s, the ratio of seniors over the age of 85 has more than doubled. This number increases into the 2050s will be over age 85.

Who will care for you in your old age? When our health is fine, it is hard to imagine that we may, as many will, lose the ability to manage basic daily activities such as bathing, toileting, walking, dressing, feeding, or moving from our bed to a chair. Many also lose mental faculties that we often take for granted, such as memory, logical or conceptual thinking or referencing dialogue with others. Without assistance, it is near-impossible to function without these capacities.

Long-Term Care Insurance is an insurance contract with an insurer designed to provide care for our chronic illness, disability, or an accident, all of which have a higher potential of occurring as we age.

Some families are incapable of caring for a senior LTCI protects our families from the financial strain of providing long-term care, just as important as life and disability insurance protects the income of younger families. The question is, who will financially support long-term care for you? LTCI is not just for seniors but for those who become similarly incapacitated at any age.

Without a plan, your choices may be limited. It is essential to plan for our long-term care independently because our government healthcare budgets and initiatives are limited. They generally place people in government-funded facilities that have beds available. As we witnessed in the pandemic, many long-term care facilities had difficulty coping with the virus spread.

Most people entirely overlook the enormous expense of paying for a private long-term care facility (some cost up to a quarter of a million dollars for five years). Why are they so expensive? They offer 24/7 high-level nursing care in a highly secure environment. Note: Anyone can call a few private long-term care companies and inquire about their care costs.

Ageing baby boomers retiring will increasingly depend on long-term care insurance, either paid for by themselves, their children or professional health care services.

The need for Long-Term Care Insurance is increasing as medical intervention and medications keep us living longer.

  • Every year, about 50,000 strokes occur in Canada. A stroke is the leading cause of a transfer from a hospital to a long-term care facility.
  • Nearly 10% (1 in 11) of Canadians over age 65 are affected by Alzheimer’s disease or related dementia.
  • An increasing demographic (7%) of Canadians age 65 and over are residing in healthcare institutions.
  • An additional 28% of Canadians age 65 and over receive care for a long-term health problem outside of a healthcare institution.

As the populace ages, more care for the elderly, such as respite care (additional home care services), will increasingly be needed to provide family members with the medical guidance and support they need to continue caring for their loved ones. With this in mind, are our families financially prepared to deal with peripheral costs associated with providing long-term care for loved ones?

  • A study authored by Dr Marcus Hollander and Neena Chappell of the University of Victoria found that approximately $25 billion worth of unpaid care is provided willingly by family members and friends in place of paid care.

What does Long-term Care Insurance (LTC) offer? Long-term care insurance provides money to pay for the care that you both desire and need. With LTC insurance, you have:

  • Broader choices about the quality and amount of care you receive.
  • An increase of options when determining where you receive care and by whom.

Source: Statistics Canada, pre-baby boomer info

Sources: Canadian Institute for Health Information, Alzheimer Society website, Statistics Canada

 

How can indebtedness jeopardize a business?

Business Banking relationships are essential. Many businesses acquire a bank loan collateralised by the total value of their assets to survive financially. Suppose a business owner with a good relationship with his bank dies. In that case, the bank may call the loan if the business begins to experience financial duress and defaults on repayment.

  • Avoid collateralising personal assets. The prospect may not be favourable when the loan equals or exceeds the value of the business and personal assets.
  • Following established rules, a bank may ask a business owner to collateralise a loan, not just with business assets and land, but with additional personally owned assets, which may encumber a spouse’s co-owned assets.
  • Add to that a possible collateralising of any assets of a son or daughter (and spouses) who also share in family business ownership.
  •  Family members of small business owners can also lose their financial security if the business defaults on loan repayments.
  • If you own a business, avoid being held hostage by the lending institution financially or forced into liquidation.

Can life insurance reduce the risk associated with the family business debt? You can solve this in a family business such as a farm by insuring the oldest and succeeding generations using joint-first-to-die life insurance policies or individual plans. Where there are non-family businesses, each owner/partner should be insured to cover the debt. When the life insured dies, the tax-free life insurance proceeds can be used to pay back loans, win back ownership, and discharge any personal assets liens.

What if there is a Critical Illness?  Also, for the same reason, consider purchasing a Critical Illness Insurance policy for each principal business owner and key persons. This product could provide a substantial sum of money to pay off debt if one were to experience a significant illness such as a heart attack or stroke. If an individual were incapacitated, they may need to be bought out by a partner or an heir (a buy-sell agreement should exist). The risk of a loan being called increases when an owner-manager is critically ill, and the bank manager loses confidence in the stabilising influence of that owner.

Note: Life insurance contracts should be compared with an advisor to understand what portion of the life insurance is tax-free.

Group Benefits and Employee Addictions

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Ten percent of the Canadian population report symptoms consistent with substance dependency. In the USA, the ratio is similar.

Source: Statistics Canada

Employers may watch for:

  • regular absence patterns
  • late for work
  • poor focus affecting production
  • confused about directives
  • appearing tired or stressed, or lazy
  • not collaborating well with other employees
  • a short temper
  • increased mistakes or wrong interpretations of duties

Have a policy for your employees who may suffer from substance abuse. Employers may have to find ways to approach, address, manage and/or get counsel for an addicted employee. The policy can also advise that your company suggest accessing an organization’s employee assistance program (EAP).

For an employee who suffers from an addiction to be eligible for group benefits, a group benefits plan may require that the employee disabled by addiction be introduced to a treatment program.


 

Group Critical Illness Insurance

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Group Critical Illness Insurance 

News of a critical illness can be very upsetting to a plan member. When you can offer them financial support during a difficult time with a Group Critical Illness Insurance plan, the employee can manage with the extra resources better.

Group Critical Illness Insurance Allows the critically ill to focus on recovery rather than worry about finances. It pays a lump sum amount when a plan member is diagnosed with a covered life-threatening illness.  The insurance benefit payment can be used as the plan member chooses. It is available to plan members and dependants.

Once a claim is approved for someone diagnosed with a covered illness, he or she is paid a lump sum. The money may be used however the person chooses, such as private nursing or medical care, modifications to a home or childcare costs, allowing the person to focus on recovery and managing the illness.

You can offer Group Critical Illness Insurance to plan members and their dependants while giving them an option to purchase additional coverage for themselves and their spouse. Benefits can be structured as either a flat amount (i.e. $25,000 to $100,000) or a multiple of the plan member’s salary.

Covered illnesses

Most standard plans cover these common major illnesses:

  • Heart attack
  • Stroke
  • Coronary artery bypass surgery
  • Cancer

Dependent on the plan, it may cover the illnesses above, plus:

  • Alzheimer’s disease
  • Aortic surgery
  • Benign brain tumour
  • Blindness
  • Coma
  • Deafness
  • Heart valve replacement
  • Kidney failure
  • Loss of independent existence
  • Loss of limbs
  • Loss of speech
  • Major organ transplants
  • Motor neuron disease
  • Multiple Sclerosis
  • Occupational HIV
  • Paralysis
  • Parkinson’s disease
  • Severe burns

Understanding the mortgage stress test

As of June 1, 2021, a new mortgage stress test has come into play. Here’s what you should know before you apply for your next home loan:

The new rules that banks must follow are to protect you, the borrower. Interest rates have been so low, so it is easy to believe that the rates will not rise, but they will. Therefore the rules are in place to ensure that you will be able to afford your home when the rates eventually rise and not default on your mortgage payments which could end with you losing your home.

When applying for a mortgage, your credit score will determine how much you can borrow. The financial institution will then offer a mortgage interest rate corresponding to that score. In addition to the rate offered, it will make a future calculation based on a higher future rate increase of an additional percentile amount. For example, borrowing $500,000, with a rate of 1.78%, means that you’d need to prove that you can make payments of $2,981 per month (at 5.25%) though the payment would actually be less at $2,063. Previously the 5.25% pre-July 1 test guideline would have been 4.70%.

As a licensed mortgage provider, we are here to answer your questions.

Understanding mortgage rates

The influence of the Bank of Canada, in tandem with the markets, influence your mortgage rates. The following are excerpts from the Bank of Canada website:

Buying a home is probably the biggest purchase you’ll ever make. If you’re like most people, you won’t pay cash—you’ll borrow most of the money by taking out a mortgage. And over the life of the mortgage, you’ll pay a lot in interest. Small changes in interest rates can make a big difference in how much you’ll pay. So it’s important that you understand what determines the interest rate on your mortgage, even if you already own a home. Many factors go into the interest rate you pay. 1

Think of a mortgage as a product you buy. Any business that sells you something tries to make a profit. To do that, the price they charge for the product has to be higher than the cost to make it. A lender profits on your mortgage because you pay more in interest (the price it charges) than what they paid to borrow the money themselves (their funding cost).1

This funding cost makes up most of the interest rate on your mortgage. Other factors include your lender’s operating costs and how much the lender needs to cover the risk that you won’t repay the loan. But funding cost is the most important factor.1

So, what determines funding cost? The Bank of Canada doesn’t set mortgage rates. But it does have some impact on them. When the economy is strong, we may raise this rate to keep inflation from rising above our target. Likewise, when the economy is weak, we may lower our policy rate to keep inflation from falling below the target. Changes in the policy interest rate lead to similar changes in short-term interest rates. These include the prime rate, which is used by the banks as a basis for pricing variable-rate mortgages. A policy-rate change can also affect long-term interest rates, especially if people expect that change to be long-lasting.1

In the past, high and variable inflation eroded the value of money. In response, investors demanded higher interest rates to offset those effects. This increased funding costs for mortgage lenders. But since the Bank of Canada began targeting inflation in the 1990s, interest rates and uncertainty about future inflation have declined. As a result, funding costs are now much lower.1

Your past credit history and some of the features you choose for your mortgage determine how much risk lenders face when lending to you. More risk means a higher interest rate. 1

Repayment relates to your credit risk. The most important risk for the lender is that you won’t repay the loan. A high credit score can help lessen this concern, as it shows the lender you’ve been good at repaying your debts. So, you may pay a lower interest rate than those who have a lower score. 1

If your mortgage is worth more than 80 percent of the value of the home, you’ll have to buy mortgage default insurance. But since insurance protects the lender from the risk of default, you may get a lower interest rate than if you go for an uninsured mortgage with a bigger down payment. 1

Interest rate risk. Most mortgage loans in Canada are renegotiated every 5 years, but they can be as short as 6 months or as long as 10 years. The more often you renegotiate, the more often you face the risk that the new interest rate will be different from the old one. If you are more comfortable with having your rate fixed for as long as possible, prepare to pay a premium for that peace of mind. 1

Prepayment risk. The lender risks losing money if you repay your mortgage early—known as prepayment risk. That’s because the lender won’t be able to profit as much from the funds they raised, particularly if interest rates have dropped since the mortgage started. So, an “open” mortgage, which lets you repay all of the loan early, usually has a higher interest rate than a “closed” mortgage, which limits how much you can prepay. 1

Source: 1 Bank of Canada